Bitcoin’s rise has attracted people from all spectrums of the world. Wall Street traders, Fintech entrepreneurs and even the CIA are all very interested. A vast amount of the world’s financial resources are being poured onto it and its many iterations. However, this has also led bad actors to use the technology. Renegade states, state sponsored cyber criminals and money launderers also use it for their ends.

Until now, some of these bad actors believed in Bitcoin’s pseudo-anonymity. Blockchain transactions can be publicly viewed on blockchain.info. Tracing who originated these transactions is a different matter. Some experts believe that bitcoin and blockchain technology could give more value if put to legitimate use. They believe that bad actors have to be taken out of the equation. Bitfury’s discovery could be the first step in achieving this.

The De-anonymization White Paper

In a landmark white paper, Bitfury announced that they have come up with a method that “de-anonymizes” Bitcoin use. The Bitfury researchers are Dmitry Ermilov, Maxim Panov and Yury Yanovich. Their white paper is entitled,Automatic Bitcoin Address Clustering. In it, they proposed combining off-chain data with blockchain information. The study ran from January 2009 to December 2017. It involved 211,789,876 transactions that covered 244,030,115 unique addresses.

The project has broad implications in the world of cryptocurrency. Law enforcement could crack down on money launderers, scammers and criminals who use Bitcoin. It could also prove to be a boon for those looking into making the blockchain as a fool proof method to track assets.

The paper describes that “off-chain data” is information that could be publicly found on the Internet. There are two methods of scanning. One is active and the other passive. Passive scanning involves using web crawlers on social media profiles. This includes twitter, reddit, facebook and online forums. Active scanning involves manual data collection. An example that the research gave, points to companies that use prefixes on their Bitcoin addresses. One of these is of the online casino Satoshi Bones. It uses the prefixes 1change and 1bones.

Bird of the same feather

Their methodology also involved what they call tagging and clustering. They further categorized these into services, gambling, mixer, darknet markets, exchanges and pool. It would be safe to say that if you are moving vast amounts of cryptocurrencies into or out of these categories, the likelihood of association gets bigger.

If you are a libertarian or someone who would not want others to see how you spend your money, Bitcoin is not the best medium. Although there are now “privacy-enhanced coins”, these are by no means a guarantee that you will have privacy. It’s worth noting that one of Bitfury’s strategic advisors include Jason Weinstein from Stepjoe and Johnson, LLC. He formerly worked as Deputy Assistant Attorney General under the U.S. Department of Justice.